The development of novel and improved technologies for bone regeneration is desirable in many clinical applications, especially in dental and craniofacial reconstruction and fracture repair. Optimal bone regeneration requires the interaction of three components at the site of injury. These include: the presence of appropriate cell type(s) with bone regenerative capacity, a suitable matrix for cellular attachment, and local presence of regulatory proteins orchestrating the bone regenerative process. The gene-enhanced tissue engineering approach to bone regeneration incorporates all three components at the site of injury. Bone regenerative cells that secrete regulatory proteins of known importance in bone regeneration are combined in a three-dimensional matrix such that a gene enhanced cell based composite having both osteoconductive and osteoinductive properties is delivered to the site for optimal bone regeneration. The first specific aim is to directly evaluate in a calvarial bone defect model the bone regenerative capacity of three cell populations of reported importance in the bone regenerative process. The three cell sources include periosteal-derived mesenchymal stem cells, fat-derived stem cells, and gingival fibroblasts. The second aim is to assess the bone regenerative potential of Sonic hedgehog (Shh), a potent regulatory protein important in craniofacial morphogenesis. Cells will be stably transduced with control and Shh expressing retroviral vectors to obtain Shh expressing cell populations. Eight mm calvarial defects will be made in skeletally mature NZW rabbits. Non-, control-, and Shh-transduced allogenic cells of the three types will be delivered to the defects in a composite matrix composed of alginate and collagen I. Additional controls include empty defects and alginate/collagen I alone. Bone regeneration will be quantitated radiographically and histologically. Animals will be sacrificed after 6 and 12 weeks. Regeneration will be quantitated histologically by measuring the area of new bone in several representative cross sections to assess both thickness and closure of regenerated bone.